Marxism and Capitalism
In this paper, I will talk about the liberal tradition and then about the Marxist tradition. First I
will define each tradition and state its basic argument, then I will try to elaborate on the main
ideas of each tradition, by comparing their views on basic issues, such as free trade, world trade
and the role of the government. I will end with their vision of the future.
What is natural?
The liberal tradition argues that capitalism is natural, therefore liberals are in favor of a free
capitalist economy. Liberals view capitalism as what human nature would lead to. Humans
being reasonable creatures will eventually understand that the most important thing is profit, and
that will result in that everyone’s standard of living improves. In the state of nature humans
trade and own property (Locke). Therefore capitalism is what benefits humans the most,
because it is what their nature leads them to. Marxism does not agree that capitalism is natural.
It is not true that humans would necessarily trade or divide labor up between themselves,
according to who does what the best. Human’s reason does not always focus on the maximum
profit, Marxists argue.
Capitalism is “the production of commodities using waged labor for private profit using
privately owned commodities” (J. Diskin). In other words the economy’s function is to act as a
system of exchange, in which the goal is to produce profits by investing (Diskin). Marxists
argue that capitalism is only a stage in human evolution.
Marxism came into life as a reaction to capitalism. Marxists see capitalism as a stage of
economic development, just as they saw feudalism as a past stage of development. Marxists see
capitalism as an imperfect stage before socialism. However, it is crucial for socialism to
emerge. Therefore, Marxists acknowledge the fact that our economy is capitalistic at the
moment. When Marxists deal with the economy, they are therefore speaking about capitalism.
Marxists view of History ( Marxist theory):
Marxism is a historical tradition which tries to show that there has always been a conflict
between people. There have always been oppressors and oppressed, it is a history of class
struggle... Freeman and slave” (Marx and Engels, p.473). The struggle is between the
Bourgeoisie (the capitalists) and Proletariat. After a long time of exploiting workers, they will
not tolerate exploitation anymore, organize and form unions, which will cause in the formation
of political parties of workers (Marx and Engels, p.481). The advancing of technology and
communication system will help workers to organize. The early ideas of liberalism which
promote freedom, also play a big role in teaching the workers that they are free and have the
right to revolt. “Taking advantage of the division among the bourgeoisie the workers will take
power and from a socialist political system”(Marx and Engels, p.482). Marxist view social
conditions disturbed , because of the “constant revolutionizing of production” (Marx and Engels,
p.482). Capitalism harbors its own overthrow from within” (Diskin). Therefore Marxists see
capitalism as revolutionary.
”The Proletariat [class] alone is a -revolutionary class” (Marx and Engels, p.482). The “social
scum [another class] ..., may, be swept into the movement by a proletarian revolution” (Marx
and Engels, p.482). The Proletarian revolution will succeed because it is a revolution of the
majority. There will be a civil war and a violent overthrow of the bourgeoisie” (Marx and
Bases of Capitalism:
According to E.K. Hunt, capitalism is based on three conditions:
1) “Ubiquity of monetary exchange” (P.11), meaning one can only get anything if one has
money to buy it.
2)Four “ identified socioeconomic classes” (P.12): a) the wealthy capitalists. b) “small business
people” (P.12). c) the working class. d) “class of destitute persons who live by various welfare
3)Profits determine the market (what will be produced, how and by whom). From that base we
can therefore understand that the principle of hiring workers is profit. Therefore workers are
hired when they contribute more than value than the wages they earn (P.13).
4)The division of labor will cause the maximum gain, which is the most important basis of
Division of labor is an important aspect of economy. Liberals argue that productivity
increases when labor is divided. “It does not just save time” (Smith, p.6), it also enables
everyone to do what they are best at, which increases the quality of the product. Further more
liberals argue that eventually everyone will gain, even the countries which have nothing to
specialize in (Lairson, p.16) (when division of labor is among countries). However, division of
labor does not work when the market is very small (Smith, p.13). Therefore the bigger the
market is, the more people benefit, and the world is the biggest market we have.
By taking division of labor into consideration we understand why liberals encourage world
trade. The world is the biggest market available for trade, and the bigger the market is the more
effective is the trade. World trade enables countries to specialize and produce as much as
possible. Only through division of labor will people and countries make an “effective use of
available resources” (Smith, p.12).
In fact liberals argue that humans are imperfect. The most efficient way of co-ordinating
them is through “voluntary co-operation of individuals- the technique of the market place”
(Friedman, p.13). Which ties into the notion that it is only natural for faulted humans to reason
about what would be the most beneficial thing they could do. It seems as if they could gain the
most through voluntary cooperation, and that is what a rational human would conclude.
Marxists on the other hand see world trade as one of the biggest evils of capitalism. They call
the expansion of world trade colonialism (governments) or imperialism (although imperialism
(private individuals and governments) can be seen as a stage that precedes colonialism). Rich
capitalist countries exploit and are “committed to [destroy] the domestic economy of the counties
they had colonized” (Goldsmith, p.25).
Marxists do not see that all parties benefit from world trade, as liberals claim. They see it as a
gain of the rich countries alone and as an exploitation of the poor and tying the poor countries to
the rich, through “inevitable ....unrepayable dept” (Goldsmith, p.261). Furthermore “there is no
reason to believe that borrowing money [one way of colonialism] from abroad,... is a mean of
achieving economic success, let alone the elimination of poverty” (Goldsmith, p.263).
Marxists’s view on free trade “ veiled by religious and political illusions, ... has substituted ...
brutal exploitation” (Marx and Engels, p.475). Free trade serves the bourgeoisie to expand their
market and profits. Further more it helps the rich become richer and the poor poorer. Liberals,
argue, that free trade is the best thing that could happen to everyone. Only trough free trade can
everyone maximize their profits. Some people might have more profits than the rest, however,
in the long run, everyone will benefit more if there was free trade, and they will be better off than
before, which is all that matters.
The Role of the Government:
However, for capitalism to work, there has to be a set framework. Here is where the role of
the government comes in. Liberals argue that the government has to, on the one hand, leave
minimize the level of control and maintain low regulations. On the other hand, the government
has the responsibility to protect some rules which are crucial for capitalism. Such as giving all of
the people the right to private ownership and maintain the currency stable in order to insure
The ideology of Liberals is based on Freedom and Individualism. Liberals like Milton
Friedman argue that economic freedom is a necessary condition for political freedom (Friedman,
p.8). So the goal of each government should be to maximize freedom. The reason for that is that
“economic freedom is ... an indispensable means ... of political freedom... and in fact total
freedom” (Friedman, p.9). Friedman takes that point even further in saying that capitalism was
what brought democracy into being (p. 10). However Friedman realizes that it is possible to
have are capitalist along with political arrangements that are not free (p.10). Therefore, he
concludes that economic power should be used to check on political power. He defines political
freedom not to be forced to do anything one does not want to do (P.15). Political freedom is
insured by the impersonal system. An impersonal market separates economic activities from
political views and protects men from being discriminated against in their economic activities for
reasons that are irrelevant to their productivity” (Friedman, p.21). Marxist say that the market
should not be impersonal because it dehumanizes the worker.
Marxists claim that there can be no freedom if the people are poor. Therefore the
government, has to take an active part in insuring that the people are not poor, rather than being
the agents of the bourgeoisie. Marxists regard governments is a capitalist system as allies of
capitalist class. The government “ is but a committee for managing the common affairs of the
whole bourgeoisie” (Marx and Engels, p.475). In the earlier stages of imperialism, or
colonialism, governments, would have gone to war because of economic benefits. Colonialism
is the political stage that comes before imperialism. The political power extends because of the
extension of economic power. Economic corporations manipulate the government, therefore the
government does what is best for its economy. To extend the market is what is best for the
capitalists, so the government acts as a n agent to expand the market, and colonizes other
countries. When third world countries serve as an extension to first world countries that is called
dualism. Two economic systems operate at the same time, the extension of the first world
capitalist system, and the remain of the previous economic system in that third world country.
Friedman stated that capitalism has principles which make it free. The first principle is that
“to a free man, the country is a collection of individuals who compose it... not something... above
them” (Friedman, p.2). Further the government is a device that facilitates free trade (Friedman,
The second principle of capitalism is that the “government must be dispersed” (Friedman,
p.3). In order for people to get the most benefits they sometimes have to travel. They have to be
flexible if they want the most profits. Therefore people are free to travel. Liberalism regards the
freedom of travel another freedom that has to be insured. Third the state has no right to tax.
Taxes deprive “of personal freedom” (Friedman, p.8). Fourth the government has no role to
“[wrestle] with ethical problems” (Friedman, p.12). That is the problem of the individual.
Therefore state and religion should be separated.
Marxist don’t believe that people can be free if they are exploited. They are enslaves and not
free. In order to be free the government has to insure that no one exploits anyone. That can be
done when the workers themselves are the people who own the companies as well. Because as
long as there is inequality and poverty there is no freedom.
Capitalism and society:
Whereas Marxist see capitalism as an unjust system where there is an exploited class of
workers, liberals see the effects of capitalism in a different light. Liberals say that capitalism had
a lot of implementations on society. One is commodification of processes. Things which were
not commodities in the past became commodities which means that they have to be bought.
Another implementation on society is that liberals claim that capitalism eliminates
discrimination, at least in the market. Productivity is the goal of every economic activity.
Therefore, Liberals argue, that racism and other forms of discrimination will decrease. The
ultimate goal of capitalism is efficiency. You can be most efficient, capitalist argue, when you
choose the best people , disregarding their race an gender. Liberals also argue that expanding
global trade and investment will eventually solve the problem of poverty. Through global trade
the standard of living of everyone will increase which will take care of the poor.
Liberals argue that the future will bring more prosperity to everyone, because through
capitalism, everyone will gain. That will result that the standard of living will go up for all
people, even those who are not capitalists.
It is the Marxists aim to unite ownership and labor, then socialism forms which is the end and
final achievement of the evolutionary theory (Diskin). Capitalism is not natural and will
therefore pass. However capitalism is a necessary step to come before the raise of socialism.
However before socialism can take over another phase of capitalism has to first pass:
imperialism. Capitalism creates surplus. Surplus generated because workers produce more than
they get in wages. Capitalist want to invest the surplus. To find cheaper labor, and to generate
more profit the capitalists want to expand the market. That can only happen by opening up the
borders, and investing in other countries. Companies start to compete to invest in outside
countries. However, they soon realize that it is more beneficial for them to unite and divide the
world up between them. So “a few rich firms occupy a monopolist position” (Lenin, p.99) which
enables them to set world prices. “Monopoly is the transition from capitalism to a higher
system” (Lenin, p.101): imperialism. Lenin also called imperialism the highest stage of
capitalism (Diskin) or the “monopoly stage of capitalism” (Lenin, p.101).
Economic activity is planned and that can be seen as a first step to a socialist government. The
problem is, however that is done by private non governmental non democratic means.
Overall, we might conclude that both Marxism and liberalism see the economy as a central
institution which is the core of all other human activities, especially the political activity. Both
see the economy together with politics as the only mean to improve people’s lives. However,
the basic disagreement is on the powers each institution should have (liberals want the economy
to be more powerful, and Marxist the government), and on which institution will cause the
raising of the standard of living (liberals think that it is the economy and Marxist the
government). In a very shallow way, we can therefore conclude that both systems have the same
ends: improving human’s standard of living. (although in capitalism you have to go through
productivity to get there). However, the means each of them use are the exact opposites.